Global Insurance Market Report: Climate Change Impact

Risks to insurance companies from climate change, including how it affects their investments and financial stability.

The investments owned by insurance companies, potentially vulnerable to climate change-related losses.

A system for collecting data used to assess and understand insurance sector risks, especially climate-related ones.

Perspectives of regulatory bodies on climate risks to insurance companies.

Models predicting the effect of climate change on insurance firms, used for forward-looking assessments.

Climate risk scenarios created by financial sector bodies to assess policy choices.

A smooth shift towards climate targets, with less disruptive impacts.

Statistical research on insurers' investments and their potential exposure to climate risks.

Climate change affects insurance companies and the financial stability of the industry.

The International Association of Insurance Supervisors (IAIS) is an international standard-setting body with a role assessing climate-related risks in insurance.

Insurers' investment choices are affected by climate-related risks, including 'green investments'.

The ways climate change risks spread through the insurance industry, impacting connected companies.

An insurer's financial statement showing assets, liabilities, and equity.

The wide-ranging and interconnected effect of a problem affecting the overall system.

The process of evaluating how climate change affects insurance companies and risks.

The shift towards sustainable practices, encompassing investment in environmentally friendly initiatives by insurers.

Ways climate risks affect insurers' investments and the broader financial system, including exposure, asset liquidation, and legal liability risks.

Direct and indirect ties between insurers, other financial institutions, and the real economy, affecting the financial system.

Potential large-scale sales of assets held by insurers due to climate-related risks.

The spread of failures in the financial system from one institution to others.

Financial institutions' tendency to exacerbate market fluctuations, potentially destabilising the system.

Situations where a market fails to efficiently allocate resources.

Climate-related risks can affect mortgage loans and real estate portfolios, increasing default risk.

The overall soundness and solvency of the financial system that includes insurers, banks and other institutions.

A system used to categorize industries based on their contribution to greenhouse gas emissions and relevance to climate policy. It helps assess financial climate risks.

The potential for financial losses stemming from climate change impacts, considering factors like rising temperatures and extreme weather events.

A European regulatory body overseeing the insurance and pension sectors, assessing their financial stability and exposure to climate-related risks.

EU legislation designed to minimize companies shifting production to countries with weaker climate regulations to avoid carbon emissions costs.

The interconnected stages involved in producing and supplying energy, from extraction to consumption.

Numerical values representing the potential impact of climate scenarios on different asset classes, like stocks or bonds.

A scenario where climate action is delayed, leading to severe consequences for insurers' investments.

Measures of how much stock prices in different sectors could drop under different climate scenarios.

Metrics indicating how much the value of company bonds may decline under various climate scenarios.

Indicators of potential losses on mortgages and loans due to climate-related events and policy changes.

Examining different future possibilities (e.g., orderly transition, disorderly transition) to understand potential risks and impacts on insurance companies.

A database that gathers information about a country's vulnerability and readiness to deal with climate change.

Financial market data from Bloomberg, including information on credit default swaps (CDS).

An insurance-like contract that protects investors against the risk of a borrower defaulting on their debt.

A region or territory with its own legal authority, often a country or state.

The cost of insurance against a country defaulting on its debt over a five-year period.

A score that measures a country's vulnerability to climate change and its readiness to adapt.

A factor that represents the potential impact of climate change on real estate values.

A situation where action to address climate change happens too slowly or not effectively enough.

Small or limited impacts from climate change.

The general belief among investors about a country's economic and environmental prospects.

Combining data from various sources, like ND-GAIN and Bloomberg, to create a more complete picture.

An approach that is not highly precise but provides a general estimate.

Information that is accessible and usable to create a stress factor.

The different possible stress factor values based on the model.

A sudden and significant impact of climate change on an insurer's financial position, typically measured at a specific point in time.

The period over which a climate shock's impact is analyzed, usually covering a medium to long-term range (e.g., 15 to 30 years).

A model that considers how an insurer's financial position might change over time due to climate-related factors.

Exploring different possible future climate outcomes to assess an insurer's vulnerability and resilience.

Providing detailed information about climate variables (like temperature, rainfall) at a granular level (regions, sectors) to assess financial risks.

A sudden impact of climate change on the insurer's balance sheet at a specific moment in time.

A model assuming certain aspects of the insurer's operations remain unchanged while assessing the shock impact.

Evaluating the potential costs and benefits of different climate adaptation strategies for insurance companies.

The NGFS outlines five key principles for creating climate stress scenarios, which are: (1) Multiple scenarios for diverse perspectives, (2) Focus on climate projections and adverse events (tail events), (3) Detailed climate pathways and financial impacts, (4) Identifying key assumptions that affect scenario outcomes, and (5) Appropriate time horizons for long-term assessments.

A balance sheet that remains unchanged over time, even in the face of climate change events. It considers the current state but doesn't factor in potential future impacts.

Climate transition scenarios are hypothetical pathways that model how a society might transition towards a low-carbon economy. They consider factors like how quickly climate policies are implemented and how smoothly the transition occurs.

Actions planned and taken by insurers in advance to mitigate or adapt to climate change risks, such as investing in renewable energy or adjusting insurance premiums.

Actions insurers take after a climate change event has already occurred, like adjusting premiums or selling off assets to cope with financial losses.

Tail events represent rare and extreme occurrences that have a significant impact on the financial system. In climate scenarios, these might include severe weather events, abrupt climate change, or policy shifts.

How climate change events, such as extreme weather or rising sea levels, affect an insurer's financial position, potentially leading to asset losses, increased claims, and reduced profits.

Different time horizons used to model climate-related risks. Short-term focuses on immediate impacts, medium-term looks at a few years ahead, and long-term considers decades out.

This scenario assumes early and effective action to address climate change, leading to a smoother transition and reduced climate risks.

This scenario assumes delayed action on climate change, leading to a more disorderly transition with potentially larger and more immediate consequences.

The ability to easily compare the financial performance of different insurers under the same climate scenario. This helps regulators assess overall industry resilience.

A scenario where no additional climate policy actions are taken beyond those already announced, leading to significant physical risks and insufficient transition to meet the Paris Agreement goals.

Financial risks arising from the shift to a low-carbon economy, including changes in regulations, technology advancements, and market shifts.

Financial risks arising from the impacts of climate change, such as extreme weather events, sea-level rise, and resource scarcity.

The level of detail and specificity included in climate change scenarios, ranging from broad narratives to individual asset-level impacts.

A high-level description of a possible future climate scenario, outlining key trends and events.

Specific climate variables, such as temperature, rainfall, and sea-level rise, used to model climate change impacts.

Macroeconomic indicators, such as GDP growth, inflation, and interest rates, used to assess the overall economic impact of climate change.

The specific effects of climate change on different economic sectors, such as energy, agriculture, and tourism.

The unique financial impacts of climate change on individual companies, taking into account their specific activities and assets.

The most granular level of climate change impact analysis, considering the specific activities and operations of a company to determine potential risks.

A process of simulating the impact of adverse scenarios, such as climate change, on financial institutions to assess their resilience.

A method of stress testing that starts with detailed information about individual assets and activities, building up to overall firm-level and system-wide impacts.

A method of stress testing that begins with high-level climate scenarios and applies them to broad economic models to estimate overall impacts.

Adjusting the parameters of economic models to ensure they accurately reflect the relationships between climate factors and economic outcomes.

Standard industry classifications used in climate-related financial analysis to categorize companies and assets based on their economic activities.

The largest loss an insurance company is likely to experience from a single event.

The probability of an event occurring within a year.

The average yearly losses an insurance company expects from property damage.

The average time between events of a certain magnitude.

Indirect consequences from climate change that affect insurance companies, like increased litigation or economic downturns.

When climate-related effects in one sector spread to other sectors, impacting insurance companies indirectly.

Analyzing how climate change impacts insurers' future financial performance.

Metrics used to assess an insurance company's financial performance, specifically focusing on how much profit they're making. They often consider factors like loss ratios and the overall impact on the company's profit and loss statements.

A key profitability indicator in insurance that measures the proportion of losses (claims paid out) compared to earned premiums. It helps understand how effectively an insurer manages risks.

Metrics used to assess the performance of an insurance company specifically related to their core insurance operations, such as managing risks and settling claims. They provide insights into the company's ability to handle potential losses.

A key technical indicator calculated by estimating the average or median amount of losses an insurance company can expect over a given period, usually a year. This helps understand the company's typical exposure to risk.

A technical indicator that focuses on the potential for extreme losses an insurance company could face in a single year, particularly in the context of climate change impacts and extreme events. It highlights the risk of outlier events exceeding average expectations.

A key technical indicator that represents the total value of assets or liabilities that are potentially at risk from a specific event or threat, often used to assess a company's overall vulnerability.

A technical indicator used to assess how an insurance company's assets might be impacted by a transition to a low-carbon economy, potentially leading to changes in value due to shifts in energy, climate policies, and regulations.

A technical indicator that measures the overall amount of losses an insurance company has experienced across different types of risks or lines of business. It provides a broader picture of their performance in managing risks.